Bear's problems less likely at other firms: Moody's

By Dena Aubin

NEW YORK (Reuters) - The crisis of confidence that sparked a run on Bear Stearns is less likely at other firms because their liquidity planning is better and they are more diversified, Moody's Investors Service said on Monday.

Emergency measures by the Federal Reserve to stem the financial crisis also should help liquidity at other U.S. investment banks, Moody's analysts said on a conference call.

"Bear Stearns had nowhere to turn, but the broker-dealers as of today do," said Blaine Frantz, Moody's lead analyst for Bear Stearns.

In a step last used in the Great Depression, the Federal Reserve on Sunday set up a program under which some large Wall Street securities firms could borrow directly from the Fed at its discount rate, a measure previously open only to banks.

Fed officials said a broader spectrum of financial firms needed access to funds after a liquidity crisis at Bear Stearns late last week.

Bear Stearns on Friday said it had suffered a run on the bank after hedge funds and other customers pulled out cash, forcing it to turn to JP Morgan Chase and the Fed for an emergency cash infusion.

Moody's, which had downgraded Bear Stearns two notches last week, on Monday said it may raise the rating after JPMorgan Chase agreed to buy Bear Stearns for about $236 million, or $2 a share.

Worries that few banks are now safe pummeled global financial stocks on Monday and sent credit spreads sharply wider. Shares of Lehman Brothers fell 29 percent to $27.92 on Monday on persistent fears it could suffer the same fate as Bear Stearns. A Lehman Brothers spokesman said on Friday the company's liquidity was strong.

Asked if hedge funds could spark a similar crisis at Lehman Brothers, Moody's analysts said no institution is immune but Lehman's prime brokerage business, through which it loans to hedge funds, is well managed.

"It's all about how you control the risk," said Moody's senior vice president, Peter Nerby. "We think Lehman is excellent at risk control."

Another distinction is that Bear Stearns' liquidity planning in the early days of its crisis was not as strong as other firms, Nerby said. "I don't think they had as good a handle on it as they should have."

Bear Stearns is also less diversified than other investment banks and more involved in some of the more problematic parts of the financial markets, Moody's analysts said.

Lehman Brothers, by contrast, has a number of earnings sources to offset weak credit and mortgage markets and derives 50 percent of its revenues from overseas, Moody's analysts said.

Moody's earlier on Monday affirmed Lehman's "A1" rating, the fifth-highest investment grade, though it changed its outlook to stable from positive, indicating less chance of a rating upgrade over the next 12 to 18 months.

Challenging financial markets and tight global liquidity will weigh on Lehman's earnings, though it has navigated the credit turmoil well, Moody's said.